Consolidation Needs Contract Specificity

September 23, 2008

There was an interesting New York Law Journal analysis yesterday on consolidating arbitration agreements in the Second Circuit and New York state. The article says that courts will tend to keep their hands off of tribunal consolidation decisions–even if there isn’t a wealth of contractual or case law support to back it up.

Hector Torres and Harold G. Levison, partners at New York’s Kasowitz, Benson, Torres & Friedman, point out that the Federal Arbitration Act limits courts’ powers to consolidate arbitration cases. But they note that the FAA is silent on arbitrators’ procedural powers to order consolidation. "Consistent with the body of case law holding that procedural issues in arbitrations are reserved to the discretion of the arbitrators," the authors write, “courts have found that consolidation is a procedural matter to be determined by arbitrators.”

The article emphasizes the differences between courts’ limited abilities to consolidate, and the tribunal’s broader powers. It also notes that the “principles and rules governing consolidation . . . have not been applied consistently” in New York state and federal courts.

The authors analyze the law in different venues. Generally, the New York federal district courts leave the matter to the arbitrators. The state courts, however, generally have said that courts may consolidate if the parties don’t forbid it in their arbitration agreements.

The article also analyzes the factors courts and arbitrators use for consolidating.

So buyers beware: the authors recommendation for your arbitration clause is to write in that consolidation is OK. Or isn’t.

Rather than relying on a court or arbitrator to make a judgment that consolidation is inconsistent with the agreements that led to the different arbitrations, just spell it out. “It is unlikely that consolidation would be permitted if one or more of the relevant arbitration agreements expressly prohibits consolidation,” the authors conclude.

But if you want to go in the other direction, Torres and Levison add: "[C]onsider including an express provision in arbitration clauses authorizing the consolidation of related arbitrations."